from the history-repeats-itself dept

A reader by the name of Shadow-Slider points us to a fascinating report from a 1897 Copyright Commission in Great Britain in which the report points out how content is different than real property because of the difference between scarcity and abundance. It sounds very much like what we discuss here -- just well over a century ago.

Some of the witnesses whose evidence has been received by Your Majesty's Commission have urged the claim of authors to perpetual copyright, on the ground that the right of an author to property in his published works is as complete and extends as far as the right of any person to any property whatever.

If this analogy were admitted, it appears to me that it would be difficult to dispute the claim of an author to perpetual copyright; but I venture to submit that the claim of an author to a right of property in his published works rests upon a radical economic fallacy, viz., a misconception of the nature of the law of value.

The necessity which is recognize in all civilised societies of conferring rights of private or personal property arises from the limited supply of that for which there is an unlimited demand. It is only from a limitation of supply that there can be any value in exchange.

But supply may be limited either by natural or artificial causes.

Wherever supply is limited by natural causes it is necessary in the public interest to limit the demand, by investing the possessor of the subject of it with proprietary rights, for without them the progressive increase of an unlimited demand operation on a limited supply would lead to the dissolution of society. To whatever extent these rights partake, as they often must, of the character of a monopoly, they do so in virtue of attributes derived from the nature of things, which may be regretted, but must be accepted as inevitable, and which the law is therefore compelled to recognise.

There is no such necessity in the case of those objects which are useful or necessary for mankind of which supply is unlimited. In that which is absolutely unlimited, in the air, in sunlight, in the forces of nature, such as heat, electricity, magnetism, &c., there is no natural exchangeable value, and therefore no property; that which, although absolutely unlimited in itself, nevertheless exceeds all probable or possible demands in exchange, there can be little or no value, and little or no property, e.g., in the sea, in the water of large or unfrequented streams, in the game of a wild country, or in the fish of the sea. It is in fact scarcity which creates value, and renders property necessary. Property exists in order to provide against the evils of natural scarcity. A limitation of supply by artificial causes, creates scarcity in order to create property. To limit that which is in its nature unlimited, and thereby to confer an exchangeable value on that which, without such interference, would be the gratuitous possession of mankind, is to create an artificial monopoly which has no warrant in the nature of things, which serves to produce scarcity where there ought to be abundance, and to confine to the few gifts which were intended for all.

Apparently my own thoughts on this stuff is accidentally derivative of what came way before...

from the it'll-make-this-all-much-easier dept

If you haven't yet, you really should read Greg Sandoval's excellent report from Hollywood on how the major studios are feeling about Netflix these days. The whole thing is quite enlightening, but can basically be summed up thusly:

The prevailing feeling among the studio managers I spoke with is that Netflix's streaming service will be a good outlet for the least-valuable material. If they have their way, Netflix will be the Internet equivalent of a swap meet, where only the most dated and least popular titles are available. The studios are betting that eventually people will get bored with the service.

Yeah. Good luck with that. But the statement I wanted to focus on was one that preceded that, and which explains why the movie studio execs think the above is even possible:

Netflix takes the scarcity out of the equation, one film industry insider said. People can watch any of the service's commercial-free films and shows anytime they want.

Notice that this is said as if this is a bad thing. And that, right there, is a one sentence summary of all of the industry's problems. It still looks upon scarcity as a good thing, and is seeking ways to bring back scarcity where there is none. This shows a rather confused understanding of economics -- one that doesn't recognize that abundance increases market size and opportunity, while scarcity decreases consumer value and market potential. Abundance is what leads to economic growth. It may require different strategies to capture pieces of that economic growth, but it inevitably leads to greater economic opportunity.

And part of the way that you capture that economic opportunity is to focus on adding value to consumers not taking it away. Yet what these studio execs appear to be doing is exactly the opposite. Consumers like Netflix's setup because it takes away scarcity. They see that as a good thing. They're actually paying for that. And the studios' reaction is that this has to go away? It's incredible. What kind of execs actually look at what consumers like and are willing to pay for... and decide "that has to be shoved aside"? If the studios are flopping it's because of thinking like this.

from the nicely-done dept

A whole bunch of you* sent over the article from humor site Cracked, all about scarcity and abundance in economics. Wait, what? A humor site? Yeah, a humor site. Of course, they don't officially claim it's an article about scarcity and abundance in economics (though, they come close). Instead, in true linkbait-fashion it's called "5 Reasons The Future Will Be Ruled By B.S." Nicely done. Then, it focuses on the idea that the future can be described as FARTS: Forced ARTificial Scarcity.

That, of course, is the kind of thing we talk about all the time, and damn these Cracked guys, they actually make it funny:

Remember the debut of Sony's futuristic Matrix-style virtual world, PlayStation Home? There was a striking moment when the guys at Penny Arcade logged in and found themselves in a virtual bowling alley... standing in line. Waiting for a lane to open up. In a virtual world where the bowling alley didn't actually exist. It's all just ones and zeros on a server--the bowling lanes should be effectively infinite, but where there should have been thousands of lanes for anybody who wanted one, there was only FARTS.

The key point, raised at the beginning of the article, which is the point we've been trying (and most likely, failing) to make for years, is that this isn't just about music and movies. Issues of abundance where there used to be scarcity is going to impact all sorts of industries, even beyond what many people expect. Or, as the folks at Cracked explain:

Which brings me to an amusing story. In the last few decades, thousands of babies in Third World countries have died from contaminated baby formula. Wait, did I say amusing? I typed the wrong word there. Anyway, what happens is the mothers mix the baby formula with contaminated water, because sanitation is poor. So why the hell do the mothers feed their infants poison formula when they can just produce milk, for free, from their own bodies? The answer is that they do it because the manufacturer of the formula, Nestle, ran lots of ads telling them to.

If you want to know what the future looks like, there it is. The future is going to hang on whether or not businesses will be able to convince you to pay money for things you can otherwise get for free.

Some of you think I'm about to talk about file sharing and DRM and the evil record labels. But that's just a teaser of what's coming. The world has changed. All the rules we were trained to believe about society from birth until now are about to go out the window.

In other words, get ready to learn how to "compete with free." Of course, it turns out that it's really not that difficult. They also do a bang up job walking through the basic thought process that goes into the steps down the road of abundance:

A. Why can't the library just buy as many digital copies as are needed for the customers, and keep them forever, if they don't naturally degrade?

B. Wait a second. It's just a digital file. Why not just buy one copy, and just copy and paste it for every customer who wants to read it?

C. Wait a second. Why do you need the library at all? Why can't a customer just buy a copy from the publisher and "lend" copies to all of his friends?

D. Wait a second. If no printing and binding needs to be done, why do you need the publisher? Just buy it directly from the author.

E. Waaaaait a second. Why buy it? Once the author makes one copy available, why can't everyone just grab it for free?

So, the article's author, David Wong, concludes, the future of pretty much all commerce is going to be about marketers trying to convince you to buy stuff that you can get for free anyway, and when he notes that you probably think you're too smart to fall for that, he points out that you probably have already, and goes about listing just a couple of examples on his own desk, such as bottled water, Windows on his computer and Excedrin pain medication.

Now, I recognize that it's a humor piece, and not meant to be taken that seriously, but since it makes some good points in a humorous manner, I do want to push back (not in a humorous manner) on some of the points made in the article. First up, I'd argue that what he's talking about isn't really "forced artificial scarcity" at all. Forced artificial scarcity is when the laws are set up to artificially create the barriers that leave you little choice to buy. What he's talking about isn't forced, but voluntary -- and that's cool. And it's also not artificial. The reason people buy things, even when there are free alternatives is because of some very real scarcities, such as convenience, trust, reputation and patronage. So, for example, when he talks about buying Excedrin over the generic, he's paying for a real, not artificial scarcity (and certainly not forced). He's paying extra for the very real scarcity of brand comfort and trust.

Separately, he exaggerates (yes, yes, I know, it's a comedy piece, and exaggerating is how comedy works, but I'm the idiot trying to pretend there are real lessons in it, so hear me out) the jobs "lost" due to these changes. The jobs change, certainly, but they're not necessarily lost. And that's because with each abundance, all kinds of new scarcities are created as well. Historically, as industries defined by scarcity move to abundance, the new scarcities tend to create even more new jobs. Now, it's true that it's not always easy for those in the old jobs to make the switch to the new ones, but almost always other new jobs do open up (which were often more lucrative than the old jobs). Remember when automated phone switching was going to put all those operators out of work? Except, yeah, that didn't happen. Instead, automated switching created tons of new jobs, such as call centers, and led to new innovations (like the internet) that created even more new jobs.

But, yeah, those are finer points to nitpick in an otherwise quite enjoyable piece on the economics of scarcity and abundance. And, now, I'm left wondering why I don't go out and hire someone who's actually funny to write about the various important issues we like to cover on this site...

* And despite so many of you sending it in, we already knew about it by the time you did. That's because hidden in the middle of the article there, Cracked links to our story about libraries fighting with publishers over ebooks. And, despite the fact that this is the sort of link in the middle of a long story that people normally ignore, Cracked appears to get more traffic than Google and Facebook combined, and so even when an infinitesimally small number of those readers chose to click on that obscure, boring-sounding link in the middle of such an article, it shows up prominently in our log files, making me wonder who cracked Cracked to add a link to Techdirt and what could I ever do to get that sort of traffic to an article on the economics of abundance and scarcity?

from the something-worth-thinking-about dept

As you know, we talk an awful lot about understanding abundance and scarcity around here, and how that's really important if you want to understand what the future holds for a variety of different businesses. Failing to understand abundance and scarcity is a recipe for disaster these days. And the more you look, the more you realize that technology is creating new abundances and new scarcities in all sorts of places. Tons of industries are either already experiencing this (entertainment, content, publishing, news, software, etc.) or are about to (energy, health care, finance, etc.). But it's also showing up in other realms as well, and Jeff Jarvis has a smart post about how it's impacting privacy. He summarizes it in a very catchy manner:

Once-abundant privacy is now scarce. Once-scarce publicness is now abundant.

The concept of "publicness" is one that's been getting greater attention lately (Jarvis is writing a book on the subject, apparently), but it's this recognition of the flipside of privacy. As Jarvis notes, it used to be really "scarce." It was very difficult to have large parts of your life public. It only happened for a very small number of people, and involved a lot of gatekeepers. That's no longer the case.

The economics of abundant publicness mean that the old gatekeepers -- editors, agents, producers, publishers, broadcasters, the entire media industry -- overnight lost their power. That's why they're so upset. That's why they keep complaining about all these amateurs taking over their sacred turf -- because they are. What they thought was valuable -- their control -- now had no value. They can't sell their casting couches and presses on craigslist for nothin'. They are being beat by those who break up their control and hand it out for free (Google, craigslist, Facebook, YouTube, etc.).

Abundant publicness also creates new value. Google search is made up of that value. Twitter movie chatter predicting box-office success is that value. Annotations on maps, restaurant reviews, health trends, customer desires -- and on and on -- all find value in our publicness and so new companies are being built on that value. That is why it is in the interests of both companies and customers to be public and why privacy -- when it does compete, when it discourages publicness -- becomes a nuisance for them.

I don't totally agree with this. I think he takes the argument slightly too far in the name of simplicity. That is, I still think that many of the jobs carried out by those old gatekeepers -- editors, agents, producers, publishers, broadcasters, the entire media industry -- actually do still have tremendous value. But a lot of how it works has changed. The problem is when they focus solely on the gatekeeping function as the value (which is Jarvis' point -- many really hung their hat solely on the gatekeeping function), then it's difficult for them to adapt. Those who focused (and still do) on providing greater overall value beyond the gatekeeping still do have tremendous value. As proof that Jarvis believes that, just look at his post about that new book he's working on where he talks up his "brilliant editor" at publishing giant HarperCollins. There's value there, it's just not in gatekeeping.

The other point in all this, which Jarvis mentions more as an aside, is that this is really just looking at the economics of free from a different angle. That is, the reason that such "publicness" is so abundant is because it's so easy for people to spread their works (and share the works of others) for free. And that increases the value of other things that you might do.

Jarvis focuses on the "publicness" side of the equation, rather than the privacy part of it, but the idea that "once abundant privacy is now scarce," is also fascinating to think about as well, and certainly fits with various themes that have been communicated over and over again -- often as simply as Scott McNealy's famous: "You have zero privacy anyway. Get over it." I don't think we've quite reached the stage of the David Brin-style world where radical, extreme transparency replaces privacy, but if you want to extrapolate out some interesting scenarios, it's fun to at least pull the lever that far in thinking about what it would mean.

Instead, I actually think that it highlights the theme of the post we recently had about how everyone has something to hide. As privacy becomes more and more scarce, those things we have to hide actually become increasingly valuable as well. Being able to keep that privacy increases in value. And that is going to lead to some very interesting and controversial business models and situations over time.

It's all a very interesting subject that I'm sure we'll be talking about a lot around here over the next few years.

Abundance breaks more things than scarcity does. Society knows how to react to scarcity.

Indeed, if you look at all of human history, probably 99.999999% of it has been about dealing with the issues of scarcity. In fact, our entire original economic philosophy (which is really just two and a half centuries old) was based on "resource allocation in the presence of scarcity." Historically, abundance just hasn't been an issue that we've had to deal with very much. And the problem is that people try to apply the mental rules of scarcity to abundance and they basically kick out an error message. It's a "divide by zero" sort of problem. You get infinity as a result, and you think it's wrong.

So the response is almost always the same. Rather than actually trying to deal with what abundance enables, people try to force abundance back into a feeling of scarcity -- which they're comfortable with. That is, they try to apply artificial rules and restrictions to make the abundance feel like it's scarce, so that they can understand it again.

But, that's not how disruption works. Disruption changes the old models -- and abundance can be disruptive in very significant ways. And disruption doesn't happen in an orderly transition, such that those who are stuck on the old models can gracefully and gradually learn about and switch over to the new models. As Shirky says:

It's easy to say "preserve the best of the old and combine it with the best of the new," but in revolution, the best of the new is incompatible with the best of the old. It's about doing things a whole new way.

Indeed. This is a point that is brought up by our critics a lot. They claim that content creators and the like shouldn't even try to shift over to the new models while the old models still have some life in them or while the new models aren't really well proven. There's this belief that they can hang onto the old, and gradually add some elements of the new, and then eventually make the jump. But, what Shirky points out more eloquently than I ever could, is that much of the new stuff is really incompatible and very much in conflict with the old. If giving away your content increases new opportunities, how do you square that with an old business model that was built entirely around the scarcity of content?

No one doubts that this is difficult, and at times requires a big leap of faith. But there's no question that there are many things today that are abundant, where they used to be scarce. And that presents a huge challenge. Yet, time and time again, we've seen that when something becomes abundant it is not a bad thing -- but an opportunity to do something even larger. It's just that it's incredibly difficult to do that if you're still hanging on to the old ways.

from the sell-the-experience dept

A bunch of folks sent over Jeff Jarvis' recent blog post entitled stop selling scarcity, which I actually think is slightly misleading. If you read the details, he's actually saying that you should very much sell scarcities -- but that you should avoid pretending that you're selling a scarcity when you're really selling something that it infinitely available:

If you are selling a scarcity -- an inventory -- of any nonphysical goods today, stop, turn around, and start selling value -- outcomes -- instead. Or you're screwed. Apply this rule to many enterprises: advertising, media, content, information, education, consultation, and to some extent, performance.

I have to admit, while I get what he's saying, I'm not sure it's particularly useful to most people, because they've always thought they were selling "outcomes" in the first place. I think that a similar post by filmmaker Ross Pruden may actually be a lot more useful, in that he talks about selling experiences, which is something that's scarce:

You think you sell a movie--you do not.
You think you sell a book--you do not.
You think you sell a song--you do not.

You sell an experience, something communicated, something elusive and ephemeral. Something mystical and transformative and inspiring. All these abstract things simply come in the shape of a movie, a book, or a song.

Never before has it been possible to strip away these experiences from the product... until now, the Digital Age.

The Digital Age lets us duplicate products infinitely. And, for the first time in human history, creators are not deprived of their original copy.

From that he points out the simple problem that many folks who were used to the old way are facing:

...now we can read a novel without buying a book.
...now we can watch a movie without buying a movie ticket.
...now we can listen to a song without buying a record.

From there, he lists out a bunch of different scarcities that come up with you separate the experience from the physical product, and notes that this is how things have always worked in reality, it's just that conceptually we merged the experience with the scarce physical product, which is why it's often so difficult to separate them conceptually now that they've become untied in reality.

The key to the Digital Age is to recognize that many existing products already embed intangibles, which is why those products are still being bought. However, once those tangibles stop being offered, or a competitor offers better intangibles, the customer will go elsewhere.

Creators can sustain. They will sustain. The market wants to sustain creators. Yet only the ones who realize that they don't sell products, but experiences. Only those creators are the ones worthy of survival in the Digital Age.

This is a great point, and more eloquent than my own post from a few years back on how every "product" was really a mix of scarce and infinite goods. To understand what the technology allows, and how to embrace it in a way that's sustainable, you need to be able to break out the components, and properly figure out what's really scarce, and what isn't.

from the it-increases-it... dept

A few weeks back, Dennis wrote about a recent Malcolm Gladwell article in the New Yorker about innovation, but I was just shown another article from the same issue, by Adam Gropnik, which may be even more interesting. Gopnik points to evidence challenging the idea that "necessity is the mother of invention," by noting that more innovation seems to occur in times of abundance, rather than times of hardship. The idea is that in times of hardship you're just focused on getting through the day. You don't have time to experiment and try to improve things -- you make do with what you have. It's in times of plenty that people finally have time to mess around and experiment, invent and then innovate.

This makes a lot of sense... and certainly fits with plenty of other things we've seen in recent research. Innovation tends to occur not because of one brilliant idea from one brilliant individual -- but as an ongoing process, with lots of folks tossing different ideas at the wall, and seeing what sticks. Invention is the beginning process, but then people innovate around various inventions to improve it and make it acceptable to the market. In fact, this is why we tend to think that the long run impact of investment bubbles isn't usually bad. Historically, the impact of bubbles has actually been quite good, and it's for exactly these reasons. Within the bubble there is tremendous abundance, and that allows for many different ideas to get tested incredibly quickly. The bad ones fail, but plenty of good ideas (and infrastructure) stick around. It's bad if you get caught up in the investment bubble, but it's good for the overall economy in the long run.

This also should (again) get people to rethink some issues surrounding patents. If it's that abundance and experimenting that leads to all that innovation, aren't we holding back that innovation by enforcing artificial scarcity, and allowing one company to entirely block others from doing the necessary experiments? In Chris Anderson's latest book, he builds on Carver Mead's idea about transistors becoming so abundant that it makes sense to "waste" them. This makes a tremendous amount of sense if you start to follow through the economic implications of "wasting" goods that are effectively infinite. When "wasted," they create new opportunities where none existed before. The innovation that comes out of abundance comes from such "waste." It comes from the ability to invent and tinker and experiment and see what sticks -- and you can't do that when you have massive scarcities -- real or artificial. So why is it that our innovation policy is still focused on enforcing scarcities when that's the exact opposite of what's needed to encourage innovation?

from the think-this-through dept

If there were no such thing as scarcity in the world, there wouldn't be a need for property rights, because there would be no borders to worry about. The entire reason why we worry about property and ownership and borders and allocation is because these things are scarce and we're concerned about the most efficient way to split up those scarce resources, without having too many arguments over who controls what scarce bit. If there were no scarcity, everyone could have whatever they wanted, and there would be no reason to worry about the rest. That's why I've never quite understood the rush to create artificial scarcity, as in the scarcity created by intellectual property laws.

It's a situation where you have the opposite of scarcity. You have abundance, such that there need not be any argument over ownership, because everyone can have what they want... and suddenly people want to take away the good thing (abundance!) and replace it with limits and a situation that is worse for everyone. Why would you ever do that, unless you either don't understand economics or you dislike mankind and would prefer that the world have fewer resources and more arguments over ownership.

"Chief among these bizarre maneuvers is the idea that, when manufacturing their flimsy dystopia, they actually ported the pernicious notion of scarcity from our world into their digital one. This is like having the ability to shape being from non-being at the subatomic level, and the first thing you decide to make is AIDS."

While an extreme quote, he's making an important point. If you are creating a new world, where unfortunate and damaging resource limitations of other worlds wouldn't be necessary, why would you arbitrarily add those limitations back in? Why would you arbitrarily shrink the resource pool?

from the a-thought-experiment dept

Over the years, I've written plenty about the economics of infinite vs. scarce goods. Too often (and I do this on occasion as well) people default into thinking of "tangible" goods as being the scarce ones, and digital goods or information goods as being the infinite ones. But the definitions can certainly expand beyond that -- and there's also the possibility that material, tangible goods could one day lose much of their scarcity. Economist Arnold Kling, riffing on a post by Will Wilkinson about why energy isn't really scarce points out that, if energy isn't scarce, matter isn't scarce either.

In theory, as you solve "the energy problem" and figure out how to create energy cheaply, then you can make any material you want as it's needed cheaply as well. Then you're in a bit of the Star Trek replicator universe where even tangible products become much more abundant. We're still a ways off from that point, but it's worth thinking about as a thought experiment (especially as 3D printer technology improves rapidly). Indeed, Chris Anderson is also thinking along these lines, noting that technology is likely to solve both of the big "shortage" problems we're facing these days: energy and food -- if only government regulations would let them.

For those who think that copyright holders should try to artificially maintain scarcity, this may be a scary situation. After all, then the same "problem" facing copyright holders, will also face makers of tangible goods. But the truth is even if you switch tangible goods from scarce to abundant, it doesn't mean that you run out of scarcities to sell. Music is more abundant thanks to digital technologies, and there are still plenty of scarcities to sell for the music industry. There are always scarcities -- it's just that they're no longer tangible goods. Instead, business models will start to revolve around those non-tangible scarcities as well, such as time, attention and reputation. But these changes could create a rather radical shift in how economies function. So, even if it's pretty far out, it's worth considering the possibilities already.

from the another-good-example dept

Whenever we talk about business models involving giving away "infinite" goods and charging for "scarce" goods, one of the points that we try to emphasize (though it doesn't always come across) is that some of the best business models are ones where you get paid for the creation of content, rather than copies of existing content. When it comes to music, we've suggested a variety of options, and pointed to stories like Jill Sobule and Maria Schneider, who have set up models where fans chip in to pay for the production of the album itself -- and, in return get lots of extras back in return (including access to the musician, early releases, credits, etc.).

In 1999 we released our final contracted album for Castle Records and, in anticipation of the way we planned to do business in the future, called it Marillion.com. We had already collected the email addresses of more than 20,000 fans through free CDs, downloads, etc. and by asking these fans to order and pay for the upcoming CD in advance, we were able to finance the writing and recording.

We maximised the profit from the pre-order by cutting out the record companies, distributors and retailers, manufacturing and shipping direct. We also released the album in the shops through an independent distributor to reach the fans not on the internet.

We released three more albums between 2001 and 2007 using this business model and despite continuing falls in CD sales worldwide we have managed to shield ourselves from the worst by continuing to build our database of email addresses, currently more than 65,000, and by offering special edition pre-order CDs with 128-page hardcover books containing beautiful artwork.

I'm sure many people still download our music illegally but the real hardcore fans want the special editions and are willing to pay £25 or more for them.

This is another fantastic example of the business model in action: focusing on connecting with your true fans, focusing on selling scarce goods (remember, the creation of content is a scarcity -- existing content is not) and giving people a real reason to buy (such as "special edition pre-order CDs with 128-page hardcover books containing beautiful artwork").

Unfortunately, after describing this great business model, Kelly veers off on a tangent that doesn't seem to fit with the point he makes in the first half. Even though his band has figured out how to profit without having to worry about "piracy," he seems to support the idea that ISPs should be responsible for file sharing, and he doesn't seem to recognize how promoting file sharing himself would help create more fans to add to that 65,000-strong email list. But, still, even though the end of the post doesn't quite match with the first half, it's great to see another band find success with this sort of business model.